January 11 2023
Updated 11.30am Sydney Time
Rates could go to 6%: Dimon. Major US indices trade near key technical levels. World Bank slashes growth forecasts. Gold nudges 8-month highs
Yesterday we spoke about two Fed speakers reminding markets US rates could rise to over 5%. Now JPMorgan CEO Jamie Dimon joined the party, saying there’s 50% chance they’ll have to go to to 6%, while money managers BlackRock and Fidelity (among others) are warning that markets are underestimating the ultimate rate peak. Meanwhile, the World Bank slashed growth forecasts in half, warning new adverse shocks could tip the global economy into a recession. World Banks says GDP will probably rise 1.7% this year, (that’s almost half the pace forecast in June). So this sets the stormy tone for the major indices in 2023. That said, JPMorgan's trading desk says there a two-in-three chance Thursday’s inflation data for December (released on US Thursday), could be on the soft side and spark a 1.5-2% S&P500 rally. On Tuesday the major US indices rose in choppy conditions; the Nasdaq 100 (USNAS100.I) rose for the third day, adding 0.9%, edging closer toward its 50 day moving average, the S&P 500 (US500.I) fluctuated around 3,900, which is a possible technical key resistance level. Others signs of caution were see in bonds, as the two-year US Treasury yield rose to 4.25%, the 10-year jumped 8 bps to 3.62%, while gold nudged up, to 8-month highs, $1,881, while the US dollar advanced modestly.
What should you be watching in equities across APAC? As in what's the big picture with China's reopening and what does it mean to investors?
The Australian share market (ASXSP200.I) opened 0.7% higher, with other APAC markets expected to also open most higher. Japan’s futures suggest the Nikkei could rise the most across APAC today. But big picture, we think the most important thing for investor right now, is to consider, that… China’s economic recovery could be the dictator for the course of commodity assets, travel, and property. Not just China tech and consumer spending. China’s pivot away from its Covid Zero stance, led by a sooner-than-expected January 8 lifting of quarantines for cross-border travel, is poised to fast track its international air-transport recovery in 2023. But China’s recovery is not just about travel reviving. Chinese developers have also been seen kicking off recoveries in early 2023, having hit a bottom for contracted sales last year. As China’s economic recovery surges, stocks remain supported and are indeed rallying. A similar trend occurred in 2020 when mainland China reopened after a series of lockdowns following a breakout in Wuhan. But, reflecting on global trends, you’d think China has a better chance of putting Covid behind it this time around… which could support commodities and travel in particular. But, let’s see.
The Aussie dollar rallies after hotter than expected CPI and retail data
The Aussie dollar rose 0.3% to 0.6911 US cents, with inflation and retail sales coming in hotter than expected, which shows the RBA has room to keep rising rates, and as such this theoretically supports the AUD. Core or trimmed CPI (which the RBA looks at) rose from 5.3% YoY to 5.6% YoY in November - hotter than 5.5% YoY expected. Retail sales rose 1.4% in November, beating the 0.6% expected, while also importantly showing Aussie retail sales strongly recovered from the October drop in sales.
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